Wednesday, November 26, 2014





Tejinder Narang
Had India not freely opened up its Non –Basmati rice export in September 2011, global prices would have escalated beyond $1000 fob pmt vs $350-450  (due to Thai Government policy of political populism of procuring paddy at about $480 pmt—40% above the market value which upon conversion into milled rice would have cost $1000 fob). Had India’s Pusa 1121 Basmati variety been absent from the global market, fragrant rice values would have crossed $3000 fob pmt vs $1000-1500 fob. The world and WTO should know this and acknowledge this specific Indian contribution.
India’s annual exports of about 10 million tons (mts) have contained precipitative fall in paddy/rice prices locally while keeping a lid on global values and earning $7-$8 billion per annum. This country has stabilized rather than distorted world rice trade. Government is a non-player; all international transactions are handled by privates with market centric approach. This is the force of free trade. 

Domestic churning
The recent domestic bearishness in rice/paddy prices both for Non-Basmati and Basmati varieties manifest perfect churning of market forces. In Non-Basmati segment, Government is consciously targeting lower paddy procurement by pruning levy obligation from 75% to 25%, shunning states who offer bonus and keeping minimal hike in MSP. This policy tweaking should make available 10 mts more rice in the market thus softening prices, supporting exports and stimulating demand expansion.
Basmati strains of Pusa 1121/1509 are being lapped by farmers/millers/traders of Panjab, Haryana, Uttar Pradesh, and Madhya Pradesh for being extra remunerative than Non-Basmati. It also inter-alia establishes that private entities in Basmati chain—producers, millers, traders exporters-- have acquired enhance capacities and financial muscle to manage high value paddy/rice. Moreover as and when Basmati sowing consumes expanded acreage, Non-Basmati output is reduced. This saves water as a precious resource while FCI/state agencies have to procure and store less of Non- Basmati rice. This results in cost and subsidy savings to the Government.
In 2013-14 Indian farmers reaped 60% extra profits by selling Pusa Basmati at around Rs 3500-4500 per quintal vs Rs 2100-2800 per quintal in 2011-12. This prompted over-production in 2014-15 and thus prices today are back to level of 2011-12. After the bull-run of 2013-14, price moderation is natural. It will be inappropriate to comment that farmers are losing money in Basmati or Pusa Basmati. Loss of profit cannot be deemed loss. It is still a profit.
Rice inflation is down to 7% in September 2014 form high of 13% in April 2014, notwithstanding scare of lower crop and less than normal monsoon.  
Another factor attributable to lower prices in Pusa Basmati is the Iran slowing down Indian rice imports in 2014-15, partly owing to lack of integrity in export transactions last year. The link explains all. (Approximately 1.4 mill tons of Pusa1121 parboiled rice shipments were made in 2013-14, at around $1250-$1400 cif pmt.). Cargo rejections caused by blending cheaper variations, settlement of quality claims etc also compelled Iran for mandating “source registrations” with Iranian authorities and pre- shipment analysis from “select” surveyors as per “executive Instructions” of APEDA in June 2014. To satisfy its demand pull, Iran will again come up with somewhat similar requirement of 1.4-1.5 mts from Jan2015. Price realization of Pusa 1121 may be lower this time at around $900-1000/mt on landed basis (cif) both due to depreciation of rupee to 1$=62 (or even beyond) and deferred procurement. Hopefully contractual compliance will facilitate smoother trade.  

Saudi buyers of Basmati rice, who procure about 0.8 mts annually have full access to India’s market view and tumbling prices. They are adept in scratching bottom of prices due to cut throat competition created by rival suppliers. Basmati exports are a perfect case study where India competes against India. Other profitable markets for Basmati shippers are USA and EU, provided all regulatory conditions are complied.
There is demand suppression in Iraq due west Asian conflict and bureaucratic reshuffle in Iraqi Grain Board. Exporters are exposed to high risk. But its food need has to be covered directly or indirectly and offers an opportunity for Indian rice exports.
India enjoys worldwide supremacy in Basmati Rice export of 3-4 mts per annum. Competition in Non- Basmati “parboiled” rice (Indian exports about 2 mts) is also limited. India competes with Thailand, Vietnam, and Pakistan for shipments of 5-7 mts annually for Non-basmati grains in Mid –East and African markets.
Another distinctive observation is that bulk of Non-Basmati rice suppliers/shippers are now based in Andhra Pradesh, Telengana, Chhattisgarh, Jharkhand, Bihar and Tamilnadu from where the port logistics to East Coast India (Kakinada, Krishnapatnam, Chennai and Vishakhapatnam) are cheaper both for bulk and container shipments. Basmati rice’s shippers are primarily based from North and West India and use West Coast India ports (Mundra, Kandla, Mumbai). Rice suppliers/shippers/exporters thus span virtually all over India.
Meeting competition
Thais have terminated their arbitrary pricing adventurism after incurring losses of $31 billion up to early 2014. Exports prices are now market determined. From high of $580 fob in 2012 for 5% broken rice, their quotes dropped to $450 a year back and now competing with India at$410-$420 range. Competitive pressures are thus hammering international trade.  India’s rank is slipping to number two from the number one, while Thailand attempts to regain top position


Chinese import of Thai rice is gaining momentum where India is absence by selective exclusion. China is also buying non-basmati from Pakistan in preference to India. Unless some diplomatic initiatives are taken with China for acceptance of our Non-Basmati varieties, we will be at a disadvantage.
Though the current estimation of indain rice export is about 9 mts, there is a glimmer of hope that rice shipments may still kiss 10 mts because increased paddy arrivals in market will keep prices soft; dollar values will decline/correct to the extent of rupee deprecation, Iran may be back in the market and Nigerian demand will remain stronger due to forthcoming elections in that country.

Wednesday, November 19, 2014




India has issued a statement on 13.11.2014 that there is an understanding  reached with USA  for inclusion of “perpetual peace clause” in place of interim “peace clause up to 2017” agreed for India at WTO’s Bali conference of December 2013. With this development, Indian understanding is that no legal action for penalties can be initiated against India by WTO members if India violates WTO conditions on Food Security and subsidies on Public stocks holdings; and that USA is now expected to garner support on the basis of this perpetual peace clause with other members for signing of TFA (Trade Facilitation Agreement) on multilateral basis at WTO by December 2014, which was deferred in July 2014.
Though the text of understanding reached between USA and India is still not available, transcript of press conference of USTR (United States Trade Representative) Ambassador Michael  Froman  of 13.11.2014, on the website, mentions “The agreement consists of two basic elements. First is a specific agreement to move forward with the full and immediate implementation of the WTO Trade Facilitation Agreement. And second, there’s an understanding about “specific” food security programs agreed to in the Bali accord. We eliminated any ambiguity in Bali about the duration of the “so-called Peace Clause”, provided that food stockpiling programs meet the agreed upon conditions in Bali.” ( ).
USTR statement is explicit that the USA has merely sorted out the “ambiguity”. It remains unclear if USA has “altered” their basic position.  India may still not be immune from legal action if the condition of subsidy beyond 10% of MSP price levels of base year 1986-88 on food stocking programs is breached without indexing for annual inflation.  (India has been very vocal to USA and WTO that annual food inflation should be accounted for determining breach in the limit of subsidies before deciding any penal action). Neither USTR has unambiguously stated that peace clause will be applied till perpetuity until India’s concerns on Food Security and subsidies on Public stocks holdings issues are settled, as claimed by the Indian officialdom.
 Are India, USA, and WTO moving from one ambiguity to another ambiguity? More details and data need to come out in public domain before the radical departure of USA position can be confirmed.  A simple reading of above quoted comments signifies that the first priority of USA remains to secure TFA at WTO and that legal action before 2017 cannot be ruled out. As per Bali agreement, peace clause is an interim arrangement and so long as USA continues to speak about adherence of “conditions in Bali”, perhaps status –quo remains.
NDA government may be right in interpreting the Bali agreement as the one exposed to limitation of peace clause till 2017 while they (NDA) themselves have aggressively initiated reform in food policies/stock holdings. USA has thus addressed Indian concern by “modifying” the language rather than shifting their position of unlimited access to India on exceeding subvention limits provided under WTO provisions.
If the USA position is “Modified”, then the very objectivity of Obama Administration on WTO becomes questionable. All issues raised by USDA on Indian subsidies and trade distortions get annulled automatically.  WTO members who have already undertaken reforms will feel embittered if India alone stands excluded. Another poser that arises is--- if there is change of heart in USA vs India due to some distinct understanding on geo-political realities and economic cooperation, is it incumbent upon other nations to follow suit and endorse policies that distort the trade!! 
Here is an explanation of how Indian public procurement policy of grains leads to trade distortion in import, export and domestic market.  There is 90% subvention under Food Security Act. Heavily subsidised grains discourage or deter import into India at world’s market prices. Thus India as a market remains closed or blocked to other exporting nations.
On the export front India has unfair advantage. Since India’s PDS system has leakage of 45-50%, the pilfered pipeline enables local traders to procure cereals at below the market prices, which enhances Indian export competitiveness to the disadvantage of other competing nations. Despite India claiming its sovereignty in its food policy management, the other nations are inimical to this flawed system because it certainly tramples on their sovereignty to trade globally.  
The Indian Government also knows that hoarding of stockpiles by FCI/State agencies sucks surpluses that would have otherwise gone to the market. These dead stocks induce food inflation and generate financial losses apart from rot of grains.   
WTO agreement attempts to put all nations on equal footing. India and USA have moved forward, as claimed by both sides, but need to come out openly and transparently so that more clarity is arrived at in the public domain to assess the terminal outcome of the deal at WTO.

Wednesday, November 12, 2014




The issue is “hoarding of dead stocks vs realization of market related worth of about Rs. 10000 crores.”  
Tejinder Narang

After exporting about 14 million tons (mts) wheat from 2012 till May 2014, India stands isolated in the world market despite excess hoarded stock in central pool of about 17 mts as of 1st October 2014 after accounting for buffer/security norm of 14 mts. 


Internationally tradable price of Indian wheat is $235 pmt fob now while Government/FCI would estimate it at $265-$270 based on current MSP and logistics. An Indian private trader will quote $285 fob from open market. This, in short, represents the impossibility of going forward.  


Wheat futures prices tracked by CBOT (Chicago Board of Trade) fell by 22% in last one year (see chart), which cannot be attributed solely to supply-demand divergence or drop in crude oil values.  The primary reason for this sharp reduction can be nailed down to Russian –Ukraine (Black Sea nations) conflict of November 2013 and subsequent sanctions/countersanctions.  

These two countries export about 35mts wheat annually against 28-30mts exported by USA.  Ukraine alone exports 20 mts of corn. Thus Black sea countries are determining factor in price discovery of grains which has direct bearing in quotes at CBOT. Logically, bilateral and multilateral geo-political tensions should have curtailed these nations’ capabilities to export, while opposite has transpired.

Post conflict financial fetters applied by US and EU led to 30% and 55% depreciation in Russian and Ukrainian currencies respectively. The entire agro complex is thus rattled by lower prices of wheat and corn which have pulled down soybean, sugar, edible oil, ethanol values. Russia/Ukraine also offer blended version of milling and feed grade wheat which can be as low as $210-$220 fob.  

Unless there is a considerable appreciation in the currencies or grain supplies in this region are choked due to harvest losses, draught or war, revival of  prices to the level of 2012-13 (around $350 fob) is not foreseen. On the contrary higher world output will keep the downward pressure in wheat prices. Pakistan has imposed 20% import duty on 5TH November 2014 to stem wheat imports by its private traders fearing further fall in future values to protect its domestic supply. Import of one million tons is expected from Black Sea by Pakistan in 2014-15.

The Government is very quick in mopping up stocks but dithers in liquidating huge inventory. The moot point is whether India wants to remain a silent spectator of market movements or makes an effort to capture a part of commodity cake by proactive action.  For the last 25years, various Indian Governments pursued a policy of an inert observer. Seldom is an initiative taken to match the market unless market rises to our expectations. Keeping dead stocks means nil accountability of officialdom.  Pricing of stocks on marked to market basis means answerability. Why not take a professional opinion on pros and cons of “hoarding of dead stocks vs realization of 85-90% or market related payment”?  

If the Government is in the business of grains then the Government must mean business to minimize losses of sunken public funds and prevent rot. Does WTO matters? Yes it does. Set aside temporal ego and abide by the peace clause of WTO Bali conference which insulates India till 2017 and settle the matter in the larger national interest. All will have win—win agreement.
The Prime Minister has urged Secretaries of the Ministries to come up with novel ideas of good and deliverable governance. Food Secretary twittered on 3th November 2014 year wise stocks with FCI as of 1st October 2014 from which it can be inferred that FCI has around 6-7 million tons of wheat of 2013-14 crop.  This tonnage will become three years old by April 2015, just four months away. It is incurring carrying cost and exposed to poor storage. It is preferable to sell new crop to Indian consumers while old one can be disposed of abroad. “Swacch Bharat” concept is not merely limited to cleaning the premises but also to de-clutter space where the possibility of rot and debris exists.  

For the old crop evaluation, exclude taxes. Taxes are not exportable. That is the international norm. Recall at London Heathrow airport, VAT is refunded. Discount the carry cost of another two years, if it remains unsold.  Old crop can be pared suitably by 10%. Match the world price under WTO peace clause and earn $1.6 to $1.7 billion (Rs10000 cr) by activating exports. If similar subsidy is being considered for the private sugar mills, why not for publicly funded grains!!

Indian Government twice lost valuable opportunities, first in last quarter of 2012-13 when it dithered in offloading wheat slightly below $300 fob and then again in the last quarter of 2013-14 to sell at about $270.00 fob and now lack of action can lead to another precipitative fall to about $ 200.00 pmt FOB.  Isn’t it better to realize $235.00 – 240.00 as of now then to   keep on perpetuating losses by hoarding? Any temporary spikes in the prices should be taken advantage of provided authorities are ready with right policy frame work.